Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

• UBS tax talks stall. Talks to settle a tax dispute with UBS (UBS) have stalled once again as the U.S. and Swiss governments try to find a legal middle ground allowing the transfer of some client data to U.S. authorities. The two countries, which have until August 12 to reach a deal, have agreed in principle on the major issues but the technical details, and in particular the data transfer timeline, are still not finalized. The Swiss government is holding a special session today in light of the stalled negotiations.
• Publicis catches a fish. Publicis (PUBGY.PK) will buy Microsoft's (MSFT) ad agency Razorfish in a cash-stock deal worth $530M, roughly 1.5 times Razorfish's 2008 sale of $380M. Publicis is already the leader in digital advertising, which is one of the few ad sectors that has continued to grow during the recession, and Razorfish is number two in the sector. The purchase is part of a broader deal in which Publicis will buy display and search ads from Microsoft at attractive terms in exchange for minimum guaranteed purchases.
• Resolution raises bid for Friends. Buyout group Resolution improved its offer for life insurer Friends Provident (FRDPY.PK) for the second time, prompting Friends to enter into discussions with Resolution "with a view to recommending its proposal." The revised offer values Friends at £1.86B ($3.1B), a 12% premium to Friends' Friday close.
• China alleges Rio deceit. Rio Tinto (RTP) shares were down 3.2% premarket (7:00 ET) after allegations from China that Rio spied on its steel industry for six years, costing China $102B in excess iron ore costs. However, the author of the document linking Rio to the excess steel charges said the article is his own opinion, not the government's, and that it's based on previously published data. Confusion over the source and severity of the Rio allegations further weakens China’s shaky credibility on issues like this.
• Geithner wants debt leeway. On Friday, Geithner formally requested that Congress raise the $12.1T statutory debt limit, warning it must be increased so that "citizens and investors here and around the world can remain confident that the United States will always meet its obligations." Geithner said the existing limit could be breached as soon as mid-October if no action is taken, as the Treasury is expected to issue up to $2T of debt in FY '09 and up to $1.6T of debt in FY' 10.
• No synergy for Dynegy. Along with quarterly earnings (see details below), Dynegy (DYN) announced it will sell nine power plants to one-time partner LS Power Associates, a closely-held power generation company. LS Power will pay over $1B for the assets and return nearly $500M in shares to Dynegy, effectively unwinding a 2006 joint venture meant to create the largest U.S. developer of coal-fired power plants. LS Power will also give up its three seats on Dynegy's board and agree not to increase its Dynegy holdings beyond the 15% stake it will be left with after the transaction.
• Friday's failures. Three more banks were closed on Friday, bringing this year's failures to 72. The failures, including two in Florida and one in Oregon, are estimated to cost the FDIC $185M. (Read the FDIC's press releases I, II, III)

Earnings: Monday Before Open

• DISH Network Corp. (DISH): Q2 EPS of $0.14 vs. consensus of $0.67 (may not be comparable). Revenue of $2.9B (-0.4%) in-line. Added ~26K net subscribers in Q2 for a total of 13.61M. (PR)
• Dynegy (DYN): Q2 EPS of -$0.41 vs. consensus of -$0.04 (may not be comparable). Revenue of $493M (+53%) vs. $612M. (PR)
• Holly (HOC): Q2 EPS of $0.29 beats by $0.02. Revenue of $1B (-40.5%) vs. $1.1B. (PR)
• Northgate Minerals (NXG): Q2 EPS of $0.02 misses by $0.03. Revenue of $130M vs. $139M in the same quarter last year because of a large drop in realized copper prices. (PR)
• Perfect World (PWRD): Q2 EPS of $0.72 beats by $0.08. Revenue of $76M (+56.5%) vs. $73M. (PR)
• Quicksilver Resources (KWK): Q2 EPS of $0.24 beats by $0.06. Revenue of $206M (+4%) vs. $194M. (PR)

Earnings: Friday After Close

• Berkshire Hathaway (BRK.A): Q2 EPS of $1,147 misses by $91.38. Operating earnings of $1.78B (-22%). (PR)
• Freddie Mac (FRE): Q2 EPS of -$0.11. Loss due to dividend payment on $1.1B of senior preferred stock to Treasury. Positive net worth of $8.2B; no additional funding required from Treasury purchase agreement. Net income of $768M vs. one analyst's estimate of $771M. (PR)
• NATCO Group (NTG): Q2 EPS of $0.32 misses by $0.10. Revenue of $156M (-3%) vs. $159M. (PR)

Today's Markets

• In Asia, Nikkei +1.1% to 10,524. Hang Seng +2.7% to 20,930. Shanghai -0.3% to 3,250. BSE -1% to 15,010.
• In Europe at midday, London -0.6%. Paris -0.6%. Frankfurt -0.8%.
• Futures: Dow -0.2%. S&P -0.2%. Nasdaq -0.4%. Crude -0.4% to $70.67. Gold -0.3% to $956.50.

Monday's Economic Calendar

• 10:00 Conference Board's Employment Trends
• Notable earnings before Monday's open: ALD, DISH, DYN, HOC, KWK, NXG, PCLN, PWRD, SYY
• Notable earnings after Monday's close: FLR, FRPT, HRP, MDR, MTXX, NUAN, QSFT, TWTC

Seeking Alpha editor Eli Hoffmann contributed to this post.

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